How to take the sting out of taxing maternity benefit for Irish working mothers

When the Irish Parenting Bloggers Group organised a blog march last October to object to Government cuts to children’s allowance, I brought a controversial proposal to the table. Instead of cutting a universal payment to all children which would affect every family, I suggested that a tax on maternity benefit would generate some of the savings that needed to made and would create an equity amongst working mothers on maternity leave, where some women had previously been benefiting from a tax anomly. Everyone would keep their children’s allowance and no one would earn more on maternity leave than when they were at work. You can read the original post here.

Children’s allowance got cut anyway.

I like to think that maybe one of the powers-that-be must have been reading this blog because at the same time they announced the children’s allowance cut, they also announced the tax on maternity benefit. From July of this year, maternity benefit will be treated as taxable income and will be deducted at whatever tax rate a recipient is currently on.

There has been a lot of criticism in the media in recent days about the introduction of this tax. I must admit, a small part of me is sorry that the tax has been introduced because if I had another baby it would affect me directly and I would have less money than I had on my last maternity leave and I would have to look at my options in terms of the amount of time I could take off.

But I have to say, I stick resolutely by my proposal to tax maternity benefit. No matter how you twist it, the old system benefited some women but not all. In reality, it was the most vulnerable women who needed it most who didn’t benefit from the tax loophole – the low wage earning mothers and the stay at home mothers, who don’t even have maternity benefit in the first place. It’s the same principle that applies to Ireland’s children: they are all equal and deserve the same children’s allowance. All mothers should be equal.

Climbing down off my high horse, the consequences of taxing maternity benefit do have a dark side with very real, negative societal impacts. The truth is women who benefited from the tax break used to use it to finance their unpaid leave so that they could stay at home with their babies for as long as possible.

Of course they did.

Many of us do everything in our power to stay at home with our children at this precious time in their lives.

From July, a whole swathe of new mothers will be cutting short their time at home due to financial commitments and it’s very, very sad. Heartbreaking for mothers, for their babies and for society who thinks children are better off in paid childcare than being nurtured by their parents.

I’m sure you’ve observed that we’re still paying the same rate of PRSI though, even though we’ll be receiving less. Given that the average age of mothers giving birth in Ireland is now 32, these women have been in the workforce a long time prior to their pregnancy and have made significant PRSI contributions, which they will continue to make if they return to paid employment.

Given Ireland’s recent renegotiated debt deal, there’s certainly a question mark over how important the saving on maternity benefit is. So here’s my new proposal:

Take the €40 million annual saving that the Government will make by taxing maternity benefit, divide it by the amount of women on maternity leave each year and calculate how many additional weeks of maternity benefit this would pay for. Then spread it evenly between all recipients.

Doing a rough calculation on CSO figures from last year, I estimate that this would give each woman on maternity leave an extra 8 paid weeks. That would be approximately 34 weeks of maternity benefit per pregnancy.

Imagine the positive impact that this would have on families and on society as a whole.

We’ve taken away the inequity in the maternity benefit system, painful as it may be. Now let’s turn the negatives of this correction into something that would be of exponential benefit to all working mothers and by default their families.

Powers-that-be, if you’re still listening, it’s time to do something good.

Great plan! But I think I have an idea that would benefit people even further. Provide that eight weeks of paid leave as paid paternity leave. Or at least give couples the option of using it that way. Allow it to be taken at any point during the first year of the child’s life. So if it suits some couples to take it together at the start, great, and if it suits others for the man to take it at the end to facilitate his partner returning to work, that’s great too.

I did not get my wages topped up at all during maternity leave, no one in my company does. It was difficult to get by on less than half my normal salary but obviously doable and worth it. Now that it’s being taxed we have had to decide not to have more children as I cannot afford another 6 months on even less income. I cannot save for this as well as I could on my first pregnancy as we have childcare to pay for now.

While I appreciate your point about some women got paid more I can’t see how it’s ok to fix that by punitively taxing people like me so that we can’t have further children. Another 8 weeks leave with social welfare payment is of no benefit to people in my situation if we cannot afford to live during the 26 weeks before that.

I agree Trish, no one should have to make decisions about the size of their family based on a taxation imposed by the Government. I think it highlights what little respect our country has for families that this is the situation we find ourselves it. The suggestion in this post to add the 8 additional weeks was an attempt to get something positive out of the harsh reality we’re now in that maternity benefit is taxed. My first post about taxing maternity benefit was an attempt to find some other way to avoid the harsh reality of reducing children’s allowance. Basically I’m trying to find the lesser of the evils when there’s a lot of attacking of families going on. Do you know what I mean?
I’m so sorry that you find yourself in this position. It’s not fair. x

Just going back to work from maternity leave next week and rang revenue today to sort out my tax credits as i had transferred them to my husband for the duration of my leave (did not receive wages during this time so seemed the best thing to do). Am now very confused – have been told that they have to start me back at week 1 as if they didn’t my husband would lose most of his wages next month as under the new system he would then be calculated as underpaying his tax (????). By starting me at week 1 when I return they can spread this underpayment over the rest of the year – we will have less take home but we can claim a rebate at the end of the year. WTF???? So it looks like my and my husbands wages are going to be seriously reduced when I return to work. She said to call when I get my first payslip to see if there is anything I can do about it. She also said that the way they are taxing the maternity benefit is very complicated and difficult to explain….But this would be my best option? Am stressed now as I have requested reduced hours in work expecting a certain income but now I don’t know if I’ll be able to make ends meet – and a rebate at the end of the year is of no benefit to me – i need my money now! (having been down over 2000 euro a month during the duration of my maternity leave). Can anyone explain this to me as I’m bamboozled by it…

Jesus Deirdre, that’s sounds like an absolute nightmare. You’re not the first person I’ve heard of having problems with this. I wish I had some information to help you. Let me see if I can find anything out…

Deirdre, another very helpful person has been in touch to say that the Citizen’s Information Centre in the Liberties in Dublin has a tax expert on the second Wednesday of each month from 2pm – 4pm. It’s a drop in service only and very busy, so users need to get there early.

The Citizen’s Information Centre in Mayfield in Cork has a Revenue person once a fortnight. She will be there on 26th August.

I’m not sure if either of those are near to you but I hope they are. Hope it gets sorted for you.

Hi Deirdre, I know exactly how you feel, I’m the same with ” and a rebate at the end of the year is of no benefit to me – i need my money now!”
I came back to work after maternity leave and what a surprise, starting back at week 1 left me with half of my usual wages…which are not huge cause I’m part time anyway. Called revenue and of course I’ll have to wait till the end of the year. P60 will be issued end of February, so we’ll probably wait till April for the refund?! How am I suppose to live off that, especially with Xmas coming soon…So angry now, it totally surprised us as weell 🙁

Hi Deirdre, I’ve responded to your query on Mindthebaby’s Irish Parenting Bloggers facebook status (your name not mentioned!) and will repeat it here. I hope it’s of help and that I have not misread your query:

‘….. as maternity benefit now taxable (from July?) it can’t be taxed at source so that means it’s usually calculated as ‘other income’ and deducted from tax credits on return to work (that’s how it used to work anyway!)

Also as maternity benefit is taxable your tax credits are needed to cover it…by transferring them to your husband they have been ‘used up’ and are not available:-( It’s kinda like you’re doing overtime now and taxed on all of it without relief…if that makes sense?

Apart from all of that if the tax office were to take the transferred tax credits off your husband to give back to you now, he would have a large underpayment and you a large overpayment. Normal practise is to issue a ‘week 1′ tax credit cert which is effective the week it’s issued/applied by employer, thereby neutralising the effect. If it wasn’t for the taxable maternity benfit that is. I hope that’s of some help…particularly to other mums considering transferring credits…. and that I haven’t muddied the waters !!’

A working mum who’s paid by employer while on maternity benefit just carries in as normal. So I think the trick is for the other mums who aren;t to consider their maternity benefit, now that it’s taxable, as simply’ pay’ and that their credits are needed to cover it…as they are for their ‘normal’ pay. Again I would use the overtime pay scenario.

I will add though that everyone should consider their options individually and double check with the tax office as to their best options but do bear in mind what I say about the transfer of credits you actually need and check that out for your own piece of mind.

Thanks Jazzygal, wish someone had told me that back in February 🙁 So will I have no tax credits for my income for the rest of the year??? Sorry I probably sound really dumb but PAYE has always confused me…

And now that I’ve started I can’t stop! I’d now like to comment as regards your initial excellent blog post @mindthebaby, if I may?!

I think it was inevitable that Maternity Benefit, as one of the few – perhaps even the only – untaxed SW payment to be taxable. It was as you say an anomoly that benefitted mothers not paid by their employer whilst on (payable) maternity leave.

I think yours and Lisa’s ideas are good ones but they’ll never do the maths… or join the dots!

To raise my bug bear issue I would go one further and deal with the one issue that has NEVER been revisited since the start of the boom and would treat ALL mothers – SAHM and working mums – more equally… or to put it another way give mother’s a viable option as to whether or not they work outside of the home. That issue is Individualisation. It may even have an impact on parent’s decisions whether or not to have any more children.

It is shocking that our current systems are forcing parents down that route…

I can’t but agree with you Jazzygal. It’s deplorable that families have to make choices about the number of children they have due to taxation burden and other financial pressures. Tax individualisation should be gone.

@mindthebaby: Phew… Glad you agree! Can be a sticky issue as most people see double rate bands etc (which was the case prior to Individualisation) as being against working mums but it’s not. In my book it equally aknowledges the contribution that SAHMs also make to the home and to their communities (I’ve blogged about this before) There’s no difference between that and the transfer of credits that Deirdre, and no doubt other wives, have made when they temporarily don’t require them…except unfortunately that no longer applies.

@Deirdre: You should have been told that back in February. However I don’t know when the decision to tax Maternity Benefit was made which may have an impact on why you weren’t told?

To clarify, I was comparing your maternity benefit to overtime not all of your income. I cannot answer your question factually as obviously I don’t know your income from both sources or your tax Credits. What I will say is that whatever your tax credits are now, be it substantially reduced or nil, it will be operated on a week 1 basis which is more manageable for you. Unfortunately any underpayment will be worked out after end of year ( make sure you keep and claim for ALL medical expenses which might help 😉 Your tax office will confirm the situation but I hope my explanation makes things a little clearer. I am obviously not aware of all the facts of your situation which may affect info I have given here but the basic concept of my explanation is sound.